Jun 25

“Active employment” and Long-Term Disability Benefits after Paquette, Toronto Employment Lawyer

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When an employee is terminated without cause, they are entitled to compensation, also known as termination notice or pay in lieu, during the notice period, which is a set amount of time as outlined in Section 57 of the Employment Standards Act, 2000. This compensation is comprised of the employee’s salary and the continuation of their benefits during the notice period.

If a terminated employee chooses to pursue an action against their employer for wrongful dismissal, employers often attempt to limit their liability to providing termination notice only, despite the employee previously being compensated in the form of bonuses, pension matching, and other benefits. Employers argue, by using an “active employment” clause in the employment contract, that since the employee is not working when they are receiving pay in lieu of notice, they are not entitled to these other forms compensation.

In the precedent-setting decision of Paquette v. TeraGo Networks Inc., 2016 ONCA 618 (CanLII), Monkhouse Law was successful in arguing that an active employment requirement, even if outlined in the contract, does not prevent the employee from being compensated for their bonuses during their notice period, for they would have received the bonus if their employment was not wrongfully terminated.

The Court in Paquette cited the Court of Appeal’s decision in Taggart v. Canada Life Assurance Company, 2006 CanLII 53345 (ON CA), which held that there should not be a substantial difference in compensation between an employee who remains employed and a terminated employee receiving termination pay. The purpose of awarding damages for breach of contract through wrongful dismissal is to put the employee in the position that they would have been, had they worked during a period of reasonable notice.

Using the same principles as Taggart, the notice period should not only compensate for the employee’s salary, but also all other forms of compensation they received during their employment. For example, an employee who received long-term disability (LTD) benefits while employed may receive the same benefits should they become disabled during their notice period. Although an employer may attempt to enforce an active employment clause, the courts above have held that this would go against the purpose of compensating an employee who seeks wrongful dismissal damages.

Therefore, if you are a terminated employee, you may still obtain LTD coverage even if you have not been actively working for months since your termination. The ‘active employment’ requirement in your contract may dissuade you from seeking compensation for LTD benefits to which you are entitled. Thus, it is important to seek legal advice regarding your entitlements to LTD benefits following your termination, as well as regarding other entitlements.

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